Apple's Regional Trends Will Face Close Scrutiny Tonight

Apple reports its Q1 2013 numbers in a few hours and the regional revenue break-downs will be one of the most important issues of the evening. One burning question for Apple is how badly its performance in Asia Pacific and Europe has been undermined by Samsung's triumphant success in the low-end smartphone market. A year ago, Apple was chugging along on all continents, delivering 54% YoY revenue growth in Asia and 55% in Europe during fiscal Q1 2012 - and those were the two weakest regions for the company.

But by the autumn quarter, two problems had emerged. During Q4 2012, Asian revenue growth had suddenly cooled to 15%. And European growth had dropped down to downright chilly 8%. Between the Christmas of 2011 and the fall of 2012, Apple's sales growth in these two regions had downshifted much faster than Wall Street anticipated in the beginning of 2012. Autumn sales growth still topped 100% in Japan and remained above 40% in the Americas.

Different research firms offer tantalizing clues to Apple's challenges in Europe and Asia. Kantar Worldpanel December report shows Apple's smartphone market share slipping YoY in its European stronghold of the United Kingdom. For the European Union as a whole, the iOS market share grew by a scant 0.2% year-on-year. This is radically different from the US smartphone market, where Apple gained more than six percentage points of market share in a year. Nevertheless, holding its European market share steady should result in more than 30% unit growth, since YoY smartphone sales growth in EU should top the 30% mark.

The problem for Apple is that several sources are now claiming that the iPhone range is undergoing a radical mix shift, with demand moving towards older models with less memory. According to CIRP, both the proportion of the latest iPhone relative to older models and the proportion of the 64 GB model relative to cheaper iPhones have shrunk dramatically in a year. Unit growth may still result in single-digit or even negative revenue growth if the shift towards cheaper models has been pronounced enough.

This is why the geographic revenue information is particularly fascinating right now. Google's Android partners including Samsung, Huawei and ZTE made particularly aggressive moves towards the sub-$150 smartphone niche during the calendar year 2012 in Europe and South-East Asia. This is likely part of the reason why Apple's performance in markets ranging from Spain to India has been disappointing in recent quarters. Europe and South-East Asia are regions where Apple is particularly vulnerable to cheap Samsung models. The revenue trends in these two regions will tell us much about how badly Samsung's low-end success is undermining Apple right now. If the damage is deep enough, it could mean that Apple simply has no choice but to launch a cheaper iPhone in late 2013.

This in turn would have profound implications for Nokia and RIM, both in the process of rolling out new, make-or-break smartphone ranges. If Samsung's low-end offensive of 2012 has been robust enough to force Apple into moving to the budget smartphone market, the rebound effect on smaller brands could be substantial. Both Nokia and RIM have depended on the sub-$300 handset market to sustain them during a challenging period. The shape of the handset market in late 2013 largely hinges on whether Apple finally makes its move to the budget segment or not.